Brookfield Infrastructure (BIPC +0.00%)(BIP 0.35%) has created tremendous value for its shareholders over the years. The global infrastructure operator has delivered a 16.3% annualized total return since its formation in 2008. That has significantly outpaced the S&P 500's 9.8% total return during that timeframe.
Powering those returns is the company's investment strategy. It buys high-quality infrastructure assets on a value basis, enhances the operations through a hands-on management approach, and then sells the assets as they reach a more mature growth phase. Brookfield then repeats that process by recycling the capital into new opportunities. This strategy has helped fuel the mid-teens compound annual growth rate in its funds from operations (FFO) per share over the years while enabling it to increase its dividend each year.
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Key Data Points
Providing a big boost
The impact of Brookfield Infrastructure's capital recycling strategy was on full display last year. In 2021, the company raised $2 billion from the sale of mature assets, enabling it to enter 2022 with over $5 billion of liquidity to fund new investments, including $3.7 billion at the corporate level. That gave Brookfield the financial flexibility to close $2.9 billion of new investments across five transactions last year. The company closed the acquisition of two Australian utility businesses early in the year. It capped the year off by completing deals for HomeServe and an interest in a large German telecom tower partnership DFMG. Brookfield also helped privatize an Australian data infrastructure company last year.
The Australian deals and the impact of acquisitions completed in 2021 helped accelerate Brookfield's growth last year. Its FFO grew 20% last year and 12% on a per-share basis. Organic drivers like inflation-related contractual rate increases and the impact of expansion projects helped power half the increase, while its capital recycling strategy supplied the balance. Meanwhile, the company's recent acquisitions have it on track to grow its FFO per share by another 12% to 15% in 2023. While organic growth will help drive about a 10% increase in FFO because of elevated inflation levels and a large upcoming expansion project competition, its capital recycling strategy will provide another nice boost again this year.
Another active year of capital recycling
Brookfield sold five businesses last year as it continues its capital recycling strategy. Those sales brought in over $1 billion in proceeds, boosting its corporate liquidity to $3.4 billion.
The company had two more asset sales in the pipeline at the end of the quarter. It expects those transactions to close in the first half of this year and bring in another $260 million.
Meanwhile, Brookfield and its joint venture partner Crestwood Equity Partners (CEQP +0.00%) recently revealed that they had agreed to sell Tres Palacios Gas Storage for $335 million. The 50-50 partners will split the proceeds. That sale furthered both companies' capital recycling strategies. It's Crestwood's fourth non-core asset divestiture over the past two years. The midstream company has used those proceeds to make several acquisitions that strengthened its position across its three core operating areas.
That deal is part of the next round of Brookfield's capital recycling strategy. The company estimates this process could raise up to $2 billion of proceeds this year. That will give it more liquidity to capitalize on new investments.
The company has plenty of potential deals in the pipeline. Brookfield CEO Sam Pollock noted on its fourth-quarter conference call:
Favorable sector trends, which have been the catalyst for our recent acquisition activity, continue to support our investment pipeline. In addition to evaluating several corporate carve-outs, a large component of our deal pipeline is comprised of public to private opportunities. As we stated in the past, the infrastructure super cycle is creating long-term investment opportunities that will require trillions of dollars. This is generating large-scale opportunities for well-capitalized players that can invest in growing operating platforms or be a partner of choice for government or corporate entities that have less access to the capital markets.
Pollock further noted on the call that it's pursuing opportunities in Europe and North America across its core focus areas of utilities, energy midstream, transportation, and data. These future investments should help boost Brookfield's growth rate well beyond the 6% to 9% annual growth it expects from its organic drivers in the years to come.
Powering accelerated returns
Brookfield Infrastructure's capital recycling strategy has helped supercharge its returns. It enabled the company to grow faster while increasing its dividend, helping drive strong total returns. With more capital recycling ahead, Brookfield should continue producing compelling returns. That makes it a great stock to buy for the long term.
